The central bank will increase so-called quantitative
easing by 50 billion pounds ($78 billion) in both November and
February and lower its benchmark rate by 25 basis points to 0.25
percent in November, London-based economists Melanie Baker and
Jonathan Ashworth said in an e-mailed note to clients today.
They had previously predicted no more purchases or a rate cut.

Data last week showed the U.K. economy shrank the most in
more than three years in the second quarter, deepening its first
double-dip recession since 1975. The weakening outlook prompted
Barclays Plc yesterday to change its forecast for U.K. stimulus,
with economist Simon Hayes now expecting an increase in QE of 50
billion pounds in November and a reduction in borrowing costs.

“We have become much more pessimistic on the outlook for
investment in particular,” Baker and Ashworth said in their
note. “There’s only so much policy makers can do given the poor
economic backdrop and huge uncertainty about future events in
the euro area.”

Morgan Stanley also reduced its gross domestic product
forecasts and sees the economy shrinking 0.5 percent this year
before growing 1 percent in 2013, compared with previous
estimates of 0.5 percent and 1.8 percent expansion respectively.

Manufacturing Slump

Data today showed U.K. manufacturing shrank the most in
more than three years in July as new orders slumped. A gauge of
factory output, based on a survey by Markit Economics and the
Chartered Institute of Purchasing and Supply, fell to 45.4 from
a revised 48.4 in June, Markit said on its website today. A
reading below 50 indicates contraction.

The Bank of England’s Monetary Policy Committee, which
begins its monthly two-day meeting today, will maintain its
target for bond purchases at 375 billion pounds tomorrow,
according to all but one of 40 economists in a Bloomberg News
survey. Scotiabank changed its forecast in a note dated July 29
and now sees an expansion of the asset-purchase target by 25
billion pounds this week.

All 53 economists in a separate poll say the bank will keep
its benchmark interest rate at 0.5 percent. The central bank
announces its decision at noon in London tomorrow.